Private education loans are an alternative/supplemental funding option to help cover the costs of college.
It is highly recommended that private loans be used as a supplement to Federal Student Aid offered by the Department of Education through the submission of the Free Application for Federal Student Aid (FAFSA). The Federal Direct Student Loan terms and conditions tend to be more beneficial for students and parents than comparable private loan offerings.
Private loans, similar to auto loans or home mortgage loans, are based on the borrower’s credit history. The credit worthiness of a student and/or cosigner is the primary way that private lenders evaluate risk and directly influences loan approval, loan programs, terms, and conditions. Most students will require a cosigner in order to obtain the most beneficial loan terms.
Private education loans, unlike Federal Direct Student Loans, are not universal and the loans offered through private lenders will differ greatly between lenders and loan products. It is very important that students and parents research the various lenders and loan products to better determine what they would like out of their private loan.
Loan Repayment Term
Private lenders offer varying lengths of repayment terms: 5, 7, 10, 15, 20 years etc., in which the loan must be repaid
Interest Rate Platform
- The interest rate is stable at a specific rate and will not fluctuate with the market.
- The base interest rate on fixed rate loans tends to be higher than an adjustable rate loan.
- Repayment will not change and remains stable.
- The interest rate will fluctuate with the market meaning that the rate will increase as the economy improves and will drop when the economy dips.
- The base interest rate on adjustable rate loans tends to be lower than a fixed rate loan.
- Repayment will change and does not remain stable.
Full forbearance until after graduation
- Typically the most expensive option, but payments would not generally need to be made until the student has completed or discontinued their degree program.
- Loans that are taken out with forbearance will generally accrue interest while the loan repayment is on hold.
Interest only payments
Allows for students to make a smaller payment while in college and prevent the loan from accruing interest over time.
Provides the lowest rates and quickest payoff, but also requires that the loan enters repayment upon loan disbursement.
Deferment & Forbearance
Forbearance and Deferment policies allow for a student to temporarily discontinue payments in the event of an emergency or other qualified circumstance.
Many lenders will provide a reduced interest rate if a student meets certain eligibility guidelines.
For example: setting up repayment through an auto-debit process, having an account with that lender (checking, savings, credit card, etc.), meeting GPA or graduation criteria, etc.
- Most students will require a cosigner in order to obtain the best terms and conditions. A cosigner is responsible for repayment of the loan in the event that the primary borrower is unable to repay the loan.
- A cosigner release will generally allow for the cosigner to be removed from the loan after a predetermined number of payments are made on time and in full (18 months to 3 years is common).
There are certain terms and conditions that will cause a lender to decline a loan application
For example: past due balances, less than half-time enrollment, unsatisfactory academic progress, issues with immigration, FAFSA, federal loan status, or degree seeking status, etc.
As with any other financial decision, it is important that students research the various lenders and loan products to ensure that they are receiving the loan that best fits their needs. Just as it would be expected to shop around and compare home mortgages and auto loans, education loans are no different.
Most people fear that shopping around and having multiple lenders initiate the credit report/inquiry process will negatively impact their credit score and loan/rate eligibility. Per the Fair Isaac Corporation (FICO):
Looking for a mortgage, auto or student loan may cause multiple lenders to request your credit report, even though you are only looking for one loan. To compensate for this, FICO Scores ignore mortgage, auto, and student loan inquiries made in the 30 days prior to scoring. So, if you find a loan within 30 days, the inquiries won't affect your scores while you're rate shopping. In addition, FICO Scores look on your credit report for mortgage, auto, and student loan inquiries older than 30 days. If your FICO Scores find some, your scores will consider inquiries that fall in a typical shopping period as just one inquiry.
The loan terms and conditions can only be produced after the lender’s risk analysis has been completed which will more than likely require a credit inquiry.
Typical Private Loan Application Process
- Submit a loan application directly to the lender of your choice. Please be sure that you are applying for the loan using the correct information to ensure that the loan is appropriately set up.
- The maximum loan amount for students is capped at a student’s cost of attendance and must be coordinated with other aid on the student's account.
- Your lender will complete a credit check and advise you of the decision.
- NOTE: Please be sure to research how long the lender's credit check is valid for so that you don't apply for the loan so far ahead of time that the credit check expires before the semester begins. Credit checks are typically valid from 30 days up to 365 days and vary by lender.
- Sign, complete, and return any documentation, disclosures, promissory notes, etc. to your lender for approval.
- Once approved, your lender will forward your loan data to Catholic University for certification. Certification is simply a verification of the information that the student provides to the lender concerning enrollment, academic standing, term dates, etc.
- Funds will be sent to Catholic University either via a paper check or electronic funds transfer. You will be notified by the Office of Enrollment Services if a paper check requires your endorsement.
Private Loan Policies
- Private loans require the coordination of various parties and requires a longer processing timeframe than Federal Student Aid. The standard processing timeframe is 4-8 weeks with that varying depending on the academic calendar and processing volume.
- Catholic University does not provide recommendations for specific lenders. Each lender implements its own proprietary credit risk analysis which can drastically differ between lenders, loan products, and borrowers.
- Private education loans can only be applied to one academic year and cannot be applied to multiple years.
- Private education loans must be structured so that the loan will be applied to the fall semester only, spring semester only, fall & spring semester split equally, or summer semester only. Please consult the academic calendar when determining the term dates for a private loan.
- Private education loans will be applied to the student account using the data provided by the lender loan certification request. It is the student's responsibility to ensure that all loan terms are accurate.
- If a loan adjustment is completed with the lender, it is the responsibility of the student to inform Catholic University of the changes. Documentation from the lender indicating the loan adjustment must be submitted prior to the certification of the loan.
- Private education loans will be coordinated with the various rules, regulations, and conditions set forth by the lender. Please be sure that the lender’s terms and conditions have been thoroughly reviewed and are understood.
- Private loans will be coordinated with any other aid received and will be applied in accordance with Catholic University policy and federal regulations.
- Once a private loan has certified, the loan is considered complete and the Office of Student Financial Assistance will not make a change in the loan amount based on a borrower's request. If the borrower is left with excess funds those funds can be paid directly to their lender as repayment of loan principal and should additional funds be needed, a second loan would need to be initiated with the chosen lender.